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3 August, 22:22

1. Taggart Inc.'s stock has a 50% chance of producing a 25% return, a 30% chance of producing a 10% return, and a 20% chance of producing a - 28% return. What is the firm's expected rate of return? a. 9.41% b. 9.65% c. 9.90% d. 10.15% e. 10.40%

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  1. 3 August, 22:45
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    c. 9.90%

    Explanation:

    The formula to compute the expected rate of return is shown below:

    Expected rate of return = (Probability 1 * Possible Returns 1) + (Probability 2 * Possible Returns 2) + (Probability 3 * Possible Returns 3)

    = (0.50 * 25%) + (0.30 * 10%) + (0.20 * - 28%)

    = 12.5% + 3% - 5.6%

    = 9.90%

    Simply we multiplied the probabilities with its return so that the expected rate of return can come.
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